Even the best VCs strikeout — a lot

May 19, 2010

Got access to a couple million bucks and want to be a venture capitalist? A miner of start-up business gold? Then get used to being wrong.

That’s one lesson we learned during a discussion with Venture Capitalists at the Reuters Technology Summit: even the most successful investors — those who finance the bandwagon others jump on when it comes to the likes of Facebook, Myspace and Twitter — meet with entrepreneurs, like what they hear, write a check, and watch the investment go up in smoke.

Rich Wong, partner of Accel Partners, an investor in social networking site Facebook and mobile advertising network AdMob, the rate of picking winners is much like baseball batting averages, where top players like Joe Mauer, Albert Pujols or Ichiro Suzuki do not get a hit 7 of every 10 times they come to the plate.

You can bat .300 or .400 and you are doing really well (even though) you are wrong a reasonable percentage of the time.

So how do I know where to invest my million? For sure, it takes heady research and years of experience, but sometimes its about a vibe. Wong says:

For me, a phrase that i have in my head is “the authenticity of the entrepreneur.” Do I like the entrepreneur? Do they actually understand the problem statement in an authentic way that they say they are trying to solve? (They could be failures because the market will evolve and competition pop up) but if they really understand the customer base or the core technology or the problem they are trying to solve, then they are going to have a better ability to navigate their way through it.

But then we still bat .300 or .400.

But consider the alternative — not investing in a winner

(Photo: Reuters)

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